Even Goldman Says China Is Cooking The Books

That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.

China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable.

The 14.1 percent jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.

Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown just as Australian Treasurer Wayne Swan says the economic rebound is a sign of improving global demand. Accurate statistics from the world’s second-biggest economy are increasingly important for domestic and foreign investors and for China’s government, ANZ’s Liu Li-Gang says.

Too good to be true:

ANZ’s Liu and colleague Louis Lam published research last week that underscored doubts about the quality of China’s economic data. They found that quarterly GDP, industrial production, fixed-asset investment and inflation data published in percentage terms failed to conform to “Benford’s Law,” which holds that in any series of numbers certain patterns will be found only if the statistics are naturally generated.

Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched figures on power, rail cargo and loans because gross domestic product numbers were “man-made.” Li’s remarks were in a U.S. diplomatic cable published by WikiLeaks in late 2010.

One reason for the "surge" in recent data may be the demand of the new Politburo to telegraph that all is well following the latest Congress which took place in November, and that the economy is once again picking up, even if in reality it isn't:

After China’s statistics bureau reported third-quarter GDP in October, Standard Chartered Plc analysts said the 7.4 percent increase was “too good to be true” when compared with the slowdown in electricity production and the readings of a manufacturing index, while London-based Capital Economics Ltd. said its own analysis indicated expansion of about 6.5 percent.

The median forecast for December exports in a Bloomberg survey of 40 economists was for a 5 percent gain, with the highest estimate at 9.2 percent, after November’s 2.9 percent growth. Goldman Sachs, ranked by Bloomberg as the most accurate forecaster for the indicator, projected a 7 percent rise.

The increase, which was the biggest since May, could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to reach the government’s 2012 target of 10 percent growth, Shen Jianguang, Mizuho’s Hong Kong-based chief Asia economist, said in a Jan. 10 note.

A possible explanation for how Chinese companies are cooking their export books comes from none other than Goldman:

“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs’ Beijing- based economists Yu Song and Yin Zhang wrote the same day.

Rushed shipments and even faked exports to secure tax refunds may have contributed to the stronger growth data, according to Alistair Thornton and Ren Xianfang, Beijing-based analysts at IHS Inc.

Some trading companies are turning to transportation providers like Shenzhen Global Express Logistics Ltd. for help in shipping goods through so-called bonded zones to claim export tax rebates or charge higher import prices for goods without them physically leaving the country. Shenzhen Global offers customs clearing and other freight services including a “one-day tour,” Lin Yongtai, a manager with the company in the city bordering Hong Kong, said in a telephone interview.

For a fee of 1,000 yuan ($161) per vehicle per day, the company will drive trucks into warehouses in bonded zones, where cargo must clear customs, so that businesses can obtain a refund of value-added tax on the “export” of their products or boost sale prices for goods that carry the cachet of being imported.

“A poor villager can boast he has thousands of yuan of turnover every day, but people later discover he only has one bull -- he takes the bull out every morning and brings it back every evening,” Lin said. “The same applies to some parts of China’s foreign trade.”

Of course, there is also the simple test of matching one country's exports to another one's imports (after all, it is a closed loop). Once more, it appears that China is literally pulling numbers out of thin air:

UBS economists led by Hong Kong-based Wang Tao pointed to a “quite obvious discrepancy” in the growth of China’s exports to Taiwan and South Korea and those economies’ reported imports from China in recent months, even as historically they have tracked each other well.

Finally, that China is openly making up numbers is no surprise: it will continue doing that until, like everywhere else, the discrepancy between perception and reality (usually manifested in the case of China by a lot of angry people breaking something or simply rioting) becomes too glaring for even the most optimistically inclined to ignore.

What is a surprise is that it is none other than the banks - the primary carriers of the status quo gene - who are implicitly pulling the rug out from beneath the economy that is supposed to once again, as in 2008 and 2009, provide the bridge from a contracting "here" to a growing "there."

The question is why?

Is this an attempt to undermine the Chinese leadership which has so far merely sought to grow the economy by fiscal stimuli, while avoiding monetary ones: i.e., finally get the PBOC involved in not only growing the money supply (if not the economy), but in joining the rest of the world's central banks in a race to debase? And if indeed this is the case, what happens when China begins growing its own local inflation in addition to importing everyone else's.

Or is it a way to force a drop in a market that hangs on to every piece of good news like a drowning meth addict clutching at the tiniest of straws, allowing the same "skepticism-inducing" banks to buy at cheaper prices?

Or, more likely, is this merely a red herring to be used as a scapegoat when the latest dead cat bounce, so optimistically telegraphed by every sell side strategist, fails to materialize once more? After all: when in doubt, blame it all on the upcoming debt ceiling fiasco, and now: made up Chinese data.

Ding, ding, ding!!! We have a winner. Every time the Fed prints, the American Taxpayer gets a bill and all the tenants of the U.S. slip further into debt slavery. What is the interest up to now anyway?

Riiiggghht. We opened processing plant in China and when we went to install the processing tanks we had to pay an installation fee that was damn near 50% of the cost of the tanks. This was nothing more than bribe money that must be paid to all those state officials who push the paperwork.

China has already nationalized everything, they are communist for christ sake. America and China are heading to the same endpoint, this has been the plan all along. In fact the central planners would like nothing more than a world where everyone works for chinese wages. Sorry, I don't call that a pretty picture.

Just like we had the Canadian train filled with biofuels cross the US border over 20 times without unloading the cargo to claim the EPA credits, we may have the same ship departing Chinese port multiple times without unloading. It's a winner: owners get the Chinese subsidy multiple times, the shipping company gets paid, the managers get generous 'allowance', and Keneysians get wet dreams. Winner!

Just like we had the Canadian train filled with biofuels cross the US border over 20 times without unloading the cargo to claim the EPA credits, we may have the same ship departing Chinese port multiple times without unloading.

Hmmmm, has Warren Buffett been investing in Chinese shipping companies.

Move on, move on. Nothing new here. They are just copying us. Does anyone here believe US government statistics. Does anyone believe the Barter, or Cash payment w/o taxes economy here is included? Brain fart! It is real, it is large; it is totally ignored in US government statistics. So their accuracy is off by at leat the amount of the Chinese fudge factor. Move on. Move on.

A Paradigm Shift is taking place, and the ASEAN-China summit gave proof positive in a seminal event of the vast changes in progress. The United States just suffered its worst humiliation ever as a nation on the Eastern global stage. It was exceeded only by the humiliation for a US president personally. The story went uncovered by the lapdog inept US press. The late November Asian summit meeting held in Phnom Penh included 15 Asian nations, which represent half the world's population. They decided to form a Regional Comprehensive Economic Partnership that excludes the United States

And that magical mythical time when EVERYONE was not cooking his books was when? Does anybody truly believe Christ had only a couple of fish and a few loaves of bread to feed that crowd? Even that Book is cooked.

I would actually believe Goldman on this. They own SSA Marine which has ports in all the top places in the Americas besides New York ironically. Unless this surge was from Asia or Europe they're probably right.

Ahahahahahahahaa! You must be fucking joking? We have the most ridiculous BLS numbers every month, our entire economy is held up by match sticks and we are worried about a country with 3.2 Trillion ins Foreign Currency reserves? This is nuts!Ever hear the saying that those who live in glass houses shouldn’t throw stones??Well, couldn’t be more appropriate!

I've always suspected this due to the complete lack of financial disclosure concerning their government lending into the shadow banking system.The G20 has turned a blind eye to this as well.Especially Socialist France.I remember the French running to the dirty commis asking for bail out money for Europe.They'd even suck a corrupt commi - economic tit.No morals in the French Government whatsoever.It's run like quite a scam actually where small business people and ordinary working Chinese investors openly borrow money at really high interest rates.You can bet that it's a big pyramid kick-back scheme.Police,Regulators and Government officials turn a blind eye to it.It's linked to corruption in the Communist Chinese Party and it runs deep right through their whole society.At all levels of the Party the smartest crooks in the Party are actively buying up a lot of California real estate.(they're not that dumb).You can bet that all the brightest commi gangsters have tax haven bank accounts like rich Greeks and former middleeast rulers. Just lately they've made some token remarks about how they'll clamp down on corruption but every hard working class person in China knows how the whole dirty scum - sucking - commi - government - pigs really operate.

Thomas Donilon: Deputy National Security Adviser(despite having a career that is mostly involved with domestic politics). Donilon was a lawyer at O’Melveny and Myers and made almost $4 million representing meltdown clients including Penny Pritzker (of Chicago) and Goldman.

William C. Dudley : president and chief executive officer of the Federal Reserve Bank of New York, partner and managing director at Goldman, Sachs and was the firm’s chief U.S. economist for a decade

Douglas Elmendorf: Obama Director of the Congressional Budget Office in January 2009, replaced Furman as Director of the Hamilton Project (Note that the Hamilton Project was funded by Robert Rubin and Goldman Sachs)

Rahm Emanuel: Obama Chief of staff, on the payroll of Goldman Sachs, receiving $3,000 per month from the firm to “introduce us to people,” in the words of one Goldman partner at the time.

Michael Frohman: Robert Rubin’s Chief of Staff while Rubin served as Secretary of the Treasury and an Obama “head hunter” according to “Rubin Proteges Change Their Tune as They Join Obama’s Team” in the New York Times.

Anne Fudge: appointed Fudge to Obama budget deficit reduction committee. Fudge has been the PR craftsman for some of America’s largest corporations. She sits, according to the Washington Post, as a Trustee of the Brookings Institution within which the Hamilton Project is embedded.

Jason Furman: directed economic policy for the Obama Presidential Campaign, served as the second Director of the Hamilton Project after Peter Orszag’s departure for the Obama administration

Mark Gallogly: Sits on the Hamilton Project’s advisory council. He is also, according to Wikipedia, currently a member of Obama’s President’s Economic Recovery Advisory Board.

Timothy Geithner: Secretary of the Treasury, a former managing director of Goldman Sachs

Michael Greenstone: the 4th Director of the Hamilton Project. Just as attorney Craig went from advising Obama to defending Goldman Sachs against the SEC complaint, Greenstone has used the revolving door to go from went an economic adviser position to Obama to one of the Goldman Sachs outlets, in this case its think tank embedded in the Brookings Institution and funded by Goldman and Robert Rubin. All 3 previous Directors of the Hamilton Project work in the Obama administration.

Neel Kashkari: served under Treasury Secretary Paulson and was kept on by Obama after his inauguration for a limited period to work on TARP oversight, former Vice President of Goldman Sachs in San Francisco where he where he led Goldman’s Information Technology Security Investment Banking practice.

Karen Kornbluh: (sometimes called "Obama’s brain") Obama Ambassador to the OECD, was Deputy Chief of Staff to Mr. Goldman Sachs, Robert Rubin

Jacob (AKA "Jack") Lew: the United States Deputy Secretary of State for Management and Resources. According to Wikipedia, Lew sits on the Brookings-Rubin funded Hamilton Project Advisory Board. He also served with Robert Rubin in Bill Clinton’s cabinet as Director of OMB.

David Lipton: now at Obama’s National Economic Council and the National Security Council. Lipton -worked with Larry Summers and Timothy Geithner, on the US response to the Asian financial crisis of the 1990’s. MergeFoundations reports that Lipton worked closely with Robert Rubin:

Barack Obama: Obama owes his career to Goldman Sachs which was not only his biggest financial contributor when he ran for the presidency but also his biggest contributor when he ran for the Senate

Peter Orszag, Obama Budget Director, founding director of the Hamilton Project, funded by Goldman Sachs and Robert Rubin. Wikipedia indicates that Robert Rubin, Goldman’s ex-head, was one of Orszag’s mentors.

Steve Ratner: the shady billionaire financier who Obama appointed as his “car czar” and who resigned after it was revealed that his company, the Quadrangle Group, was apparently involved in “pay to play” for a billion dollars or so of New York State pension funds, and was under possible indictment by the New York AG and the SEC, also sits on the Advisory Council of the Goldman funded Hamilton Project

Robert Reischauer: a member of the Medicare Payment Advisory Commission from 2000-2009 and was its vice chair from 2001-2008. He too sits on the Hamilton Project’s advisory board.

Alice Rivlin: Obama named Alice Rivlin to his so called deficit reduction commission.

James Rubin: Son of Robert Rubin. Served as a headhunter for Obama per the New York Times article, "Rubin Proteges Change Their Tune as They Join Obama’s Team"

Gene Sperling: advisor to Timothy Geithner on bailouts, Sperling paid by Goldman Sachs for one year of consulting work.

Adam Storch: Obama Managing Executive of the Security and Exchange Commission’s Division of Enforcement Vice President in the Goldman Sachs Business Intelligence Group

Larry Summers: Obama chief economic adviser and head of the National Economic Counsel, Worked under Robert Rubin at Goldman Sachs

Robert Zoellick: Bush II Administration: United States Trade Representative (2001-2005), Deputy Secretary of State (2005-2006), World Bank President (2007 -), Former Goldman Sachs Title: Vice Chairman, International (2006-07)

When hyperfinflation started to happen in Argentina, they just came up with a CPI number WITHOUT the items that hyperinflation was effecting (food, health care, cars, gas) with the reasoning that it doesn't matter since the people couldn't afford these items anyways.